The MBW Review gives our take on some of the music biz’s biggest recent goings-on. This week, we delve back into Sony Corp‘s FY2016 results to assess how much exchange rates dragged the company’s recorded music numbers down. The MBW Review is supported by FUGA.
Sony Music has been stitched up by the Yen.
On Friday, Sony Corp revealed the FY2016 fiscal performance of its music division – and its numbers didn’t quite tally with the good news stories flying around the industry at the moment.
Reported in local currency by Sony in Japan, the company’s recorded music revenues were officially down 5.8% in the 12 months to end of March 2017.
Meanwhile, Sony said its streaming music revenues grew year-on-year by just 27.6% – as download and physical declines dragged down the overall sales performance.
However, MBW has been fiddling with our calculator.
We’ve worked out what Sony Music’s numbers look like when you discount the corrosive effect of currency exchange related to the ever-strengthening Yen.
It makes for rather brighter reading.
Here comes the science: MBW has reverse-engineered Sony’s recorded music financials from Japanese Yen into US dollars at the prevailing exchange rate of the past two years (FY 2015: 120.1 Yen per USD; FY 2016: 108.4 Yen per USD).
This effectively gives us a constant currency picture of Sony Music’s performance, wiping out the negative impact of the Yen’s heavy appreciation since 2015.
This isn’t a perfect system; it risks overplaying the major record company’s global business slightly by converting a chunk of revenues from Sony Music Entertainment Japan (which would usually be straight-reported in Yen) into US dollars.
But it provides us with a cleaner reflection of the performance of New York-based Sony Music Entertainment outside of FX distortion – and, therefore, shows what’s really happening under the hood of the business now run by CEO Rob Stringer.
The big headline: on a US$ constant currency metric, Sony’s recorded music revenues grew by approximately 4.4% in its FY2016 – up from $3.44bn to $3.59bn.
That’s a far rosier picture than figures presented by Sony Corp in Japan on Friday, which showed a drop in FY2016 recorded music sales from 412.7bn Yen to 388.9bn Yen.
It won’t have escaped Rob Stringer and co’s attention that this 4.4% constant-currency rise is slightly higher than Universal Music Group‘s equivalent constant-currency recorded music growth in its FY 2016 (the 12 months to end of December) – which stood at 3.3%.
Using the same US$ calculation, you can also work out an approximation of Sony’s recorded music performance in FY2016 across individual formats.
For example, Sony Corp reported streaming revenue was up 27.6% in FY2016 (after its unfavourable Yen conversion).
That doesn’t sound too good when you consider that UMG posted a 58% rise in recorded music streaming revenues in its FY2016, while Warner saw a 55% increase (to end of September 2016).
However, when you convert Sony’s Yen numbers back into US$ at constant currency, its annual streaming growth comes out at a much sprightlier 41.4% – still behind its rivals, but far closer to parity.
Most importantly, in US$ constant currency terms, Sony Music’s streaming growth comfortably offset declines in download and physical sales in FY2016.
When these figures are converted to Yen, the opposite is true – perfectly illustrating the fiscal distortion caused by the growing strength of Japan’s home currency.
Using a US$ constant currency metric, Sony’s streaming revenues grew by $379.4m in FY2016 to $1.297bn – as physical and download sales fell by a combined $262.m.
Physical was down 7.1% or $91.8m to $1.21bn; downloads dropped 23.7% or $170.4m to $541.8m.
As reported by Sony Corp on Friday, Sony’s overall music division (including recorded music, publishing and ‘visual media and platform’) posted 4.6% growth – which would have increased to 11% at constant currency.
This performance was flattered by the strong performance of mobile gaming app Fate/Grand Order within ‘visual media and platform’. (It’s obviously a stretch to categorize this as ‘music’.)
Sony Corp also reported on Friday that its music publishing operation’s revenue fell – down 6.6% to 66.541bn Yen.
However, revert thing back to US$ and, again, you find a similar story to recorded music.
At a US$ constant currency level, Sony’s publishing sales actually grew – up 3.5% to $613.8m.
(Once again, this figure probably slightly flatters Sony slightly as it converts money generated by Sony Music Publishing Japan into US$.)
Finally – another important point.
According to Sony Corp, the company’s music division is forecasting a 2.7% decline in sales in FY2017 (the 12 months to end of March next year). The firm specifically mentioned further falls in physical and download sales as a danger to investors.
It will be interesting to see how much of this 2.7% drop ends up being pinned on revenue falls at Sony’s ‘visual media and platform’ segment after its especially strong year.
Judging by Sony Music’s FY2016 results at the US$ source level, you’d expect the major’s New York HQ to actually be forecasting more streaming-driven growth in FY2017.
This obviously matters very much in the context of the recovery of the global music business.
However, within Sony Corp, Sony Music still faces a challenge beyond its control: unless worldwide currency trends change dramatically, any business generating the majority of its revenues in the US is going to face a harsh headwind when its numbers get crunched in front of shareholders in Tokyo.
